US Treasury urged to close glaring lawyer loophole used in $4.5 billion ‘Wolf of Wall Street’ corruption scandal

Global Witness
have today called on the US Treasury Department to take action to close the
loophole in US anti-money laundering rules that is alleged to have allowed more
than US $500 million of money from the 1MDB corruption scandal into the US. The
call comes as Global Witness publishes a new analysis, The Real Wolves of
Wall Street, focusing on the role of the bankers, lawyers and auditors in
enabling Malaysia’s 1MDB corruption scandal as disclosed by the US Department of Justice's
evidence in its civil forfeiture case. The 1MDB scandal may have robbed the Malaysian people of an estimated US$4.5 billion.

“Our analysis
shows that the international anti-money laundering system is not working
properly,” said Global Witness Senior Campaigner Murray Worthy. “The 1MDB
scandal would simply not have been possible if the system worked as it is
supposed to; the financial professionals involved would have spotted this dirty
cash and prevented the money from ever being taken.”

According to
the US Department of Justice, the billions embezzled from 1Malaysia Development
Berhad (1MDB), a government owned-company, were spent on luxury properties,
high-end art and lavish lifestyles, as well as payments to the Malaysian Prime
Minister Najib Razak. Most famously, money taken from 1MDB allegedly funded the
Leonardo DiCaprio film The Wolf of Wall Street.

The analysis of
the evidence in the 1MDB case published today highlights how those involved in
the scandal used the client accounts of two major US law firms; Shearman and
Sterling and DLA Piper, to move hundreds of millions of dollars into the US.
Funds moved through the firms’ client accounts were used to buy the Time Warner
Penthouse in New York, a private jet and pay for multi-million dollar gambling
expenses.

Lawyers in the
US are not required to do customer due diligence on their clients in the same
way that banks do, nor do they have to investigate client conduct unless they
believe their client is engaging in illegal activity. This is particularly
problematic for lawyer client accounts as the banks that hold these accounts in turn only have to
do checks on the law firm, not its clients. The result is that client accounts
can be used as a way of getting money into the US system without going through
existing anti-money laundering safeguards, as was the case in the 1MDB scandal,
without the banks or the lawyers having done anything wrong.

Worthy said: “We’re calling on the treasury to close
this enormous loophole in the rules to stop dirty money flowing into the US.
This case demonstrates just how easy it can be to escape US anti-money
laundering rules through lawyers’ client accounts.”

Global Witness
have written to the Treasury Department calling for it to close the loophole
posed by US lawyers’ client accounts, by requiring financial institutions to
conduct anti-money laundering checks on those using them.

As there is currently no law requiring
US lawyers to conduct due diligence there is no suggestion either the law firms
Shearman and Sterling or DLA Piper broke or failed to apply anti-money
laundering rules.

Worthy adds;
“This is not the first time we have seen lawyer’s clients’ accounts used to
facilitate corruption and if nothing is done to close this glaring loophole,
then it will not be the last.”

Law firms
often have pooled accounts they open with banks they use to temporarily hold
funds on behalf of clients for whom they are brokering deals, such as the sale
or purchase of real estate. When lawyers hold accounts for their clients, the
banks that hold these accounts in turn only have to
do checks on the law firm, not its clients. So, neither the bank nor the law
firm are required to do checks on the clients using these accounts.